TESTIMONY OF
MITCHELL E. DANIELS, JR.
DIRECTOR
OFFICE OF MANAGEMENT AND BUDGET
BEFORE SUBCOMMITTEE ON TREASURY, POSTAL SERVICE AND
GENERAL GOVERNMENT
COMMITTEE ON APPROPRIATIONS
U.S. HOUSE OF REPRESENTATIVES

MARCH 14, 2002

Mr. Chairman, Representative Hoyer, Members of the Subcommittee, I am
pleased to be here this morning to discuss the President's FY 2003 Budget
request for the Office of Management and Budget (OMB).

Introduction

Let me start by noting that my colleagues at OMB and throughout the
Executive Branch have worked hard to present this Congress and our fellow
citizens with a very different budget for Fiscal Year 2003. I would like
to bring to the Committee's attention some new features which I hope will
now become part of your annual expectations and deliberations.

This budget takes seriously the assessment of government performance,
and its relationship to future spending. Activities where effectiveness
can be proven are maintained and often reinforced; those that demonstrably
fail, or can make no showing of effectiveness, in many cases are looked
to as sources of funding. The days when programs float along year after
year, spending taxpayer dollars with never a showing of reasonable results
or return, must give way to an era of accountable government. This and
all future budgets must no longer be permitted to answer only "How
much?" They must also answer the question "How well?"

This innovation responds to decades of calls by good government advocates.
While long overdue, it is essential at a time when the physical safety
of Americans requires that the federal government take on many additional,
expensive tasks. It would be unconscionable to fund poorly performing
programs given the realities of our economy and homeland security needs.

A Two-front War Against Terrorism

Mr. Chairman, we presented a budget for a two-front war. It proposes
substantial increases, those the President believes necessary to deliver
on the paramount duty of the federal government, to secure the safety
of the American people.

Last year's budget began the reconstruction of a neglected national
defense base, and that project continues now with new urgency. Funding
for the category of activities we now term "Homeland Security"
will double under the President's plan: airline security, first responders,
bioterrorism, border security and preventive law enforcement, are all
scheduled for major increases as recommended to the President by Governor
Tom Ridge.

We have worked closely with the Office of Homeland Security to define
and budget for these activities. We will guard against and oppose efforts
to divert funds from Homeland Security requirements or to misclassify
unrelated funding under Homeland Security's priority status.

Winning our two-front war is not optional, and will be expensive. As in
other times of national conflict, tradeoffs will be required. We propose
a very reasonable level that allows spending not related to the war or homeland
defense to grow by around 2%. Within this "Rest of Government"
category the President proposes $355 billion in spending. It must be noted
that the activities it encompasses have enjoyed rapid funding increases
during recent years, growing by an average annual rate of more than 8% since
1998.

Within this enormous sum, it is both possible and desirable to increase
high priority programs of proven effectiveness. Dozens of programs across
the government are scheduled for growth based on demonstrated results.

Measuring Performance and Delivering Results

For decades, good government advocates have called for systematic measurement
of government's performance, and its reflection in the allocation of resources.
In 1993, Congress passed the Government Performance and Results Act (GPRA),
which was intended to implement this reform, but the potential of GPRA
has been only partially realized. The President's budget for 2003 responds
to Congress' instruction, differentiating where the facts are available
between programs that work and those that do not. Many programs of proven
effectiveness are strengthened by shifting funds from those which can
make no proof of performance.

A serious attitude toward performance is long overdue. It takes on special
urgency at a time when the demands of national security assert a heavy
claim on our resources. We hope the findings of this budget will trigger
interest in performance assessment, and bring forth much new information
about that large majority of programs for which we have no useful data
at all.

Full Funding for Federal Retiree Costs

In the interest of both accuracy and sound management, the President's
FY 2003 Budget takes a major step toward full cost accounting of programs
and departments by recording the costs of health and retirement benefits
at the time and in the accounts where the costs are borne. At long last,
the true cost of these programs will be visible, and managers will have
full incentive to control the costs of additional personnel.

This budget corrects a long-standing understatement of the true cost
of literally thousands of government programs. For some time, the accruing
costs of the Federal Employee Retirement System (FERS) and the Military
Retirement System (MRS) have been charged to the affected salary and expense
accounts, but agencies have only paid a portion of the costs for Civil
Service Retirement System (CSRS) employees and a few other small retirement
systems. A large portion of the liability has been unfunded and the remainder
hidden in OPM's mandatory accounts. The full cost of accruing benefits
should be charged to the affected salary and expense accounts, so that
choices for program managers and budget decision-makers are not distorted
by inaccurate cost information.

To state the obvious, if Congress chooses to reject this reform, the
Administration will strongly oppose the $9 billion in requested discretionary
appropriations from being seized and spent on other programs. These resources
need to be available for Federal employee retirements one way or mother,
but obviously we do not intend for them to be spent twice.

OMB Budget

For FY 2003, the Office of Management and Budget requests budget authority
of $73.5 million. This request is the same as the FY 2002 enacted level,
adjusted for the Administration's proposal to fully fund accruing federal
retiree costs. The OMB budget request will provide 510 full-time equivalent
(FTE) positions, 17 below the FY 2002 FTE level of 527.

The Office of Management and Budget assists the President in the development
and implementation of a government-wide budget, fiscal, and management
policies. As the chief management and budget office of the Executive Branch,
we have a special obligation to adhere to budgetary discipline and maximize
productivity. As you can see from our budget request for FY 2003, OMB
is committed to maintaining budgetary restraint while funding new initiatives
including emphasis on government-wide information technology and E-Government.

As it has for agencies across government; OMB has compared its management
capabilities and organization against the standards for success of the
President's Management Agenda. The baseline evaluation as of September
30, 2001 indicated that there is work to be done at OMB in each of the
five areas targeted by tile President for government-wide improvement.
Our particular focus will be to better manage OMB's human capital and
effectively harness information technology.

Consolidated Executive Office of the President Appropriation

As you know, the Executive Office of the President (EOP), despite the
name, has never been budgeted for as a single entity and is not currently
covered under a single appropriation. As part of the FY 2003 Budget, the
Administration is again requesting a consolidation and financial realignment
for the EOP. The initiative would consolidate 15 EOP components and fund
them with a single appropriation for a total of $336.2 million.

This will give the President maximum flexibility in allocating resources
and staff in support of his office and is intended to: permit a more rapid
response to changing needs and priorities; allow the President to address
emergent national needs; produce greater economies of scale and other
efficiencies in procuring goods and services; and, enhance accountability
for performance. This initiative will allow the President to align EOP
resources to meet changing national priorities - something he cannot do
now under the current account structure. I know that Mr. Phil Larsen,
Special Assistant to the President and Director of the Office of Administration
will be talking with you later this afternoon about this proposal.

Electronic Government E-Gov

I'd like to spend a little time discussing an item that is important
to the President and is under the purview of this subcommittee -"The
E-Gov Fund." Let me start by highlighting the recent Council for
Excellence in Government Survey that found 70% of Americans favor investing
in E-Government to mal

The Vice President recently launched the newly designed FirstGov web
site and the Administration released its E-Government strategy. There
are four target audiences for this endeavor. each providing opportunities
to transform delivery of services: individuals, businesses, other governments,
and federal employees.

This strategy is primarily being implemented through 24 multi-agency
EGovernment initiatives that will lead to significant improvements in
productivity. These initiatives will transform government operations by
making citizen's needs paramount. Each of these initiatives will result
in the elimination of duplicative agency IT programs and savings could
reach several billion dollars. For example, FEMA is leading an initiative
to create a one-stop portal with information applicable to public and
private organizations involved in disaster preparedness and response.
Accurate and timely data from this project may result in saved lives and
reduction of property damage; it may also save millions of dollars by
eliminating redundant programs and agency costs.

The FY 2003 Budget seeks $45 million for the second installment of this
fund, totaling $100 million over the next three years. OMB would manage
allocations from the fund housed in an account in the General Services
Administration. Projects will be selected that create savings by replacing
redundant efforts, and that have viable business cases and implementation
plans.

We appreciated this subcommittee's support of this initiative last year
and hope it will continue to place a high priority on funding innovative
interagency projects that would deliver services directly to the public,
or create the infrastructure to support such delivery. We look forward
to continuing to work with you and your staff in this important initiative.

Conclusion

The OMB budget request for FY 2003 reflects the President's commitment
to hold down spending levels in light of our Nation's new priorities in
the war against terrorism at home and abroad.

I want to thank you for the opportunity to meet with you today to discuss
the OMB budget request. I look forward to working with the Committee.
I would be happy to address any questions the Committee may have on the
OMB budget or other budgetary issues.